Small Business Debt Relief – How It’s Done

If your business is mired in debt, your cash flow suffers. And that threatens the very existence of your business. That’s when small business debt relief becomes a topic of importance. Fortunately, you have options. Lots of ’em.

While you might think declaring bankruptcy is your only and/or best option, think again.

If you go this route, you’ll find it very hard to get a business loan in the future. Customers, employees and creditors won’t want to do business with you. You may never be able to be in business for yourself again.

The bankruptcy procedure itself may cost you your business. It’s expensive and time-consuming, and you often lose control of the process. Not a good thing, brother.

1. Your Plan

Find out how you got into your debt situation and have a plan to avoid it in the future. You have to be honest with yourself.

If the demand for your product or service just isn’t there anymore, don’t con yourself or anyone else. Your business might be finished and, if so, business debt relief isn’t going to solve your real problem – it will just lighten or delay it a little.

Many times our business get into trouble because our personal financial lives need attention.  Here’s a post that can help put your personal financial situation back on track.

But if you really think your business would thrive if only your debt payments were lower, then you might have a shot.

Reducing debt payments will generate greater cash flow, meaning extra money you can invest in your business. That in turn will (hopefully) generate greater profits and enhance your ability to pay back the money you borrowed.

That’s the plan you want to be clear about, and it’s the core idea you need to present to your creditors. So you need to really understand the nature of the problem for two solid reasons:

a. You want to make sure you never find yourself in this situation again, as I said. You have to understand it in order to know what to do in order to avoid it in the future.

b. Once you find the root cause of the problem, you’re going to go to your creditors with a debt payment plan. They’ll be much more likely to work with you if they know you’ve got a handle on the problem.

2. Debt Relief

With a firm grasp of the nature of the problem and having taken steps to make sure the problem won’t reoccur, you’re ready to approach your creditors. You have two routes and I recommend exploring them both:

First, approach each of your business creditors as I recommend above. Explain the nature of why you have the cash flow problem and ask them to:

• Reduce the interest rate.
• Spread the payments out over a longer period of time.

Explain how this benefits the lender by making your business viable again. In many cases, the lender will work with you. She’s mainly interested in just getting her money back and will hopefully be reasonable.

Your second route is to consolidate the debt. You’re going to take unsecured loans such as credit card debt and vendor bills and roll them over to one loan with a lower interest rate and lower monthly payment.

You can roll this debt into either a secured or unsecured loan. Secured loans have lower rates. That’s because if you fail to pay, the lender knows she can take the collateral – usually real estate.

One company that helps people with unsecured debt consolidation loans is Lending Club (for more information, see my Lending Club review). Consider checking out them as well as other alternatives.

Third option (a surprising bonus option) can help in some cases of a temporary cash flow challenges and should be utilized with attention to details.

This option is applying for a 0% Intro APR on balance transfer credit card offer. It will allow you to pay more money toward your debt instead paying a portion of it on interest.

Remember that the 0% APR is limited for a certain period and not forever. Therefore, I only recommend it if there is a temporary cash flow challenge.

If you ever found yourself in this situation (or are in it now), how did you get your business out of the debt pit? Did your business ultimately thrive?